- McDonald’s launched its chain of coffee shops in Australia in 1993
- McCafé, BK Coffee, and K Coffee have all recently made advances on the specialty coffee sector
- McCafé plans to open another 1,000 stores in China, where it can shape the future of the country’s coffee industry
FOR MELBOURNE’S proud reputation as a specialty coffee hub, McCafé’s presence has become something of an inconvenience.
McDonald’s initially chose the Australian city as a testing ground for its chain of coffee shops in 1993, with the belief that if it worked in Australia, then it would work in the US.
However, what neither Melbourne nor McDonald’s could have anticipated was quite how popular it would become.
In 2019, Roy Morgan’s research reported that McCafé was the most-visited coffee shop in Australia. It had become so popular, in fact, that it even created a native wattle seed and chai blended drink for its “Macca” coffee aficionados in 2022, dubbed “the australiano”.
And in 2017, an advertising watchdog ruled that McCafé could retain its claim to be “Australia’s most popular” coffee chain, after several complaints. “Despite looking at the data in a multitude of different ways, we cannot see any other brand in a better position to make this claim than us,” said a company spokesperson at the time.
While this may be seen to undermine Melbourne’s reputation as a seedbed for coffee trends, it actually does the opposite. The love Melbournians have shown towards McCafé speaks of a global phenomenon which has seen coffee become an increasingly crucial part of fast food companies’ output.
Coffees sold through McCafé outlets reportedly generate more than $4 billion in annual sales in the US alone. And in France, it is the fastest growing coffee chain, with over 350 locations across the country.
This popularity has not gone unnoticed by McDonald’s fast food rivals. Burger King runs its chain of BK Cafés and KFC recently launched its first dedicated coffee kiosks in Shanghai.
However, while the concept of fast food chain coffee encroaching on specialty coffee brands was once a remote and far-fetched possibility, fears about the full potential of these chains are starting to gather pace.
Specialty coffee cherry picking
In 2018, McCafé launched an attack on the specialty coffee sector. In a television commercial, it openly expressed its disdain of specialty coffee’s hallmarks, pitting the simplicity of its coffees against specialty’s complicated, expensive, and “pretentious” nature.
“That’s £9,” says one barista to a customer, who responds with a splutter, “What?”
Last year, Burger King took a similar line of approach in a commercial for its BK Cafés in India. It listed several coffee choices, before concluding: “Too many complications, right? That’s why we’re keeping it simple. Introducing BK Café with a new range of delightful coffees without the complications.”
According to coffee procurement specialist, Dan (not his real name) who previously worked for a coffee trading company that partnered with McDonalds, McCafé markets itself as gourmet, “without the nonsense” in order to stand out.
“They are not a copy-paste of a brand like Starbucks,” he says. “They are certainly trying to capture some of the segment because it’s a very lucrative segment, but on the other hand they are differentiating themselves.”
However, in spite of this approach, they have borrowed a lot of the language commonly used in the specialty coffee market and adapted it to appeal to their customer bases.
For example, KFC’s coffee sub-brand, K Coffee, recently launched in China by offering its Guatemalan single coffee espresso sold at a considerably lower price than the market average: the price of a coffee from KFC is around 9 yuan ($1.30), compared to the average price of 30 yuan ($4.30) per cup at Starbucks.
In 2019, McCafé in the US also proudly announced that its new “Colombian Medium Roast” was “100% sustainability sourced through McDonald’s Sustainability Improvement Platform (SIP) to help invest in coffee growers and their communities over the long term”.
“McCafe beverages are significantly less expensive than Starbucks, but they still push a more gourmet image than most McDonald’s menu items,” writes Kate Taylor for Business Insider. “For comparison, a tall caramel macchiato at Starbucks costs nearly twice as much, at $3.95.”
Should the specialty coffee sector be worried?
Fast food’s advance on specialty coffee makes sense.
The National Coffee Association’s 2022 report found that 43% of US coffee consumers chose specialty coffee in the past day, up 20% since January 2021. It also revealed that consumers had increased their coffee consumption away from home by 8% in the same period.
For fast food brands which already boast strong brand awareness and a high number of physical stores, adding premium coffee to the mix offers a strong chance of garnering results.
The likes of McDonald’s, KFC, and Burger King all command significant economies of scale, which means they can drive down costs compared to other specialty coffee companies. And all without taking too much financial risk, they are able to expand beyond the fast food market and tap into their vast network of resources.
If McCafé notices rising demand for oat milk, for example, it doesn’t take much for them to roll it out on a wide scale and at a lower cost. This makes them the perfect “gourmet” alternative for cost sensitive customers, allowing them to satisfy their coffee craving without breaking the bank.
“We will always continue to innovate in the right space for what our customers are after,” McDonald’s Australia marketing director Jo Feeney said. “We’ll never be the complete hipster coffee, but we certainly want to stay on the edge of what our customers want.”
However, despite the evident popularity of fast food coffee chains in the US, Australia, and France, among others, Dan suggests that developing markets are more likely to become the target for premium fast food coffee.
He claims that the value proposition of quick, convenient, and low-cost coffee to-go fits well into markets where consumers are still wary of paying over the odds for a cup of coffee.
“Perhaps the right direction is to position themselves with a value proposition where they say, ‘Look, you can still have your coffee on the go, but you don’t have to spend that much,” he says.
In line with this, McCafé has said it would double down on the three Ds: (Digital, Delivery and Drive Thru). By leveraging competitive strengths and building a powerful digital experience, it can cater to the fast, easy experience that consumers in emerging markets value.
And in China, it has made no secret of its intentions. It recently stated plans to launch 1,000 new locations by the end of the year as part of a 2.5bn yuan ($381m) investment strategy in the country. If it achieves its aim, McCafé will cement its position as one of the country’s leading coffee chains.
Wherever the market goes, it is clear that coffee will play an integral role for fast food companies over the next few years. And who knows – it might not be long before McDonald’s becomes the coffee brand that was once associated with the likes of hamburgers and fries.
